Growth of Near-Shore Outsourcing,Growth of Near-Shore Outsourcing,Reason for Growth of Near-Shore Outsourcing
The growth of near-shore outsourcing
Outsourcing destinations like India and china are now
facing stiff competition from Eastern European countries like Romania, the Czech
Republic, Slovakia, Ukraine, and Russia, and North African countries like
Morocco. Eastern European countries are the clear favorites in the list for near
shore outsourcing by countries in Western Europe. Hence, the term near shoring
is used as opposed to off shore outsourcing.
Reasons for the growth of near shoring:
Approaches to IT based near
- Companies in U.K because of their
geographic proximity prefer to work with service
providers in Eastern Europe as they are only a couple of
hours away from Britain by flight, while they have to
travel half way round the globe to get to India or
- Near shoring enables the
outsourcers to manage affairs in a better fashion.
Complicated functions need tighter management controls
on a daily basis.
- There is tremendous savings on
cost, which is the very basis for outsourcing. Taking
wage differences as the sole cost factor is wrong. The
cost of managing a distant outsourcing project will be
much higher than that of a near shoring one
- The fear of risks is moderate
- English is spoken and understood
in these countries
- The standard of education in the
Eastern European countries is very high. Their
professional skills are impeccable and wages relatively
low. Therefore companies in Western Europe are turning
to them in an effort to strike a balance between cost
effectiveness and high quality service
- Culturally too, the Eastern
European countries are better adapted than India and
china. Cultural dissimilarity manifests itself in
decision-making, attitude to work, and communication
styles. These have adversely affected some firms
outsourcing to India and china.
- Stable economies: The former
communist countries of Eastern Europe have now opened
up. With liberalization and privatization being key
words, the governments of this region have laid emphasis
on investment in infrastructure, development of
telecommunication and banking sectors.
- India and china losing their edge:
Apart from the above reasons, there is a growing
perception that the outsourcing giants of Asia, India
and China, may be losing their competitive edge. They
may be getting costlier compared to their Eastern
European competitors. The growing unrest in the Indian
society and political tensions with Sri Lanka and
Pakistan has made Eastern Europe a good alternative
With regard to Information technology based near-shore
outsourcing, there three broad options to choose from
- Project based outsourcing: This is an approach where the
relation between the near shore vendor or service provider and the client is
limited to the duration of a specific project.
- Captive operation approach: In this approach, the
companies in Western Europe would set up outsourcing offices in Eastern European
countries. The staff of these offices is usually all natives. They are managed
by the outsourcing company. This approach calls for huge foreign investments and
are usually adopted by large corporations only as the risks involved are
- Dedicated Development Centers (DDC) approach: This is
the most popular of the three approaches. Here the vendor provides a team of
dedicated developers to work exclusively on long-term project for the client,
which has complete operational control. There are many variations to this model.
In some cases, both the vendor and the client share the risks and
responsibilities. In the built-operate- transfer approach, however, the task of
setting up infrastructure, of hiring the required staff and the operation
performed by the vendor. After a specified period, the vendor would hand over
the facility to the client.
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